Is a corporation only responsibility to their stockholders and making a profit for them?
An ongoing debate in the economic world is currently raging, as economists, consumers, and corporations discuss whether or not a corporation is responsible for more than just making a profit. The neoclassical model is that, yes, they do indeed only have that sole responsibility. To their shareholders, to their customer, and to their employees, they have the sole responsibility of keeping money in their pockets. The counter argument is that the world’s biosphere, the entirety of the world and all it supports, is in jeopardy, and it is the responsibility of those who can act, such as the multi-billion dollar corporations, to act, by enacting a sustainable business model. The main discrepancies shown between the two extreme sides of debates, at least as I have seen them, are that the argument for social responsibility does not seem to take into account the starting revenue costs to a corporation, the short term costs, will negatively affect the business. Also, the argument against social responsibility assumes that if a corporation was to show any shred of social responsibility, it would lose revenue, lose stock price, be bought out and revamped with a much less responsible model so that it would return to generating profits. These two extremes make large assumptions and ignore important issues that must be addressed if a practical, sustainable, solution is to be made.
The argument made by Milton Friedman, of the New York Times Magazine, in The Social Responsibility of Business is to Increase its Profits, back in 1970, is that of the ‘yes’ position. The general ideology of this argument is that if a corporation were to decide to be socially responsible, it would have to impose a raised price on a product, a loss of revenue for the stock holders, and a wage loss for the workers in order to pay for such a social movement. The author chooses the example of the corporate executive, embodying the corporation, as an embodiment for the corporation. He argues that a corporate executive, if he or she so wished, could choose to pursue moral, ethical, and social responsibilities, but would do so at their own economic expense, and not at the expense of the stakeholders in the company. He also argues that the business executive has a “social responsibility” to his stakeholders, through his business, but that this social responsibility is to keep the price down, the cost low, and profit margins high.
The main points in Friedman’s argument are that spending money on social responsibilities, such as environmental clean-up, is an unconstitutional taxation of the society in which the business acts. This argument does not do well in arguing against the idea of social responsibility, which argues that a corporation has a responsibility to a society beyond monetary. Friedman’s argument centers around any sort of social responsibility costing more than shareholders would allow, leading to the end of the business. However, evidence in the opposing article shows those businesses that practice sustainable practices, which are deemed “socially responsible”, in fact have increased revenue, and increased health of the company. Additionally, the key argument that a corporation must comply to the stake holders demands, however it must be said that what the stakeholders demands change with the change in society, and the change in the desire for social responsibility. When the stakeholders start to demand a more sustainable image, the corporation must adapt.
The argument made by Joe DesJardins, in the Business & Professional Ethics Journal, Vol. 24, in Business and Environmental Sustainability, is that of the ‘no’ position. The ideology behind DesJardins’ argument is that sustainability is a social responsibility. DesJardins is quick to define sustainability as a system with three main parts; economical, ethical, and ecological sustainability. Without all three, he argues, a business will not survive the coming new industrial revolution. A sustainable corporation is not a corporation that shows sustained growth, but one that grows sustainably, that is, one that develops better practices, and better products. DesJardins writes of how a business can seek additional revenue by going sustainable and cutting waste, and looking into full cycle companies. Additionally he writes about how the growing demand for sustainability as a social responsibility of corporations has already started to shift how the business does things. Additionally the argument presses that a large root of the problem is the way consumerism is working in today’s society and the power business has over the market demand.
DesJardins’ argument does well to cover every side of the issue, however when discussing the various changes that a corporation would need to make in order to be socially responsible, he fails at providing much evidence or case studies of how a business would fund such a massive shift in paradigm. Additionally, the argument made that a corporation has responsibilities for the full life cycle of a product was argued very weakly, and lacked sufficient evidence to say why corporations need to have this responsibility, only why they should have the responsibility.
A third article, given in the appendix below, by The Economist, from 1/17/2008, entitled Just Good Business, further elaborates on the case of the ‘no’, while striking some middle ground with the argument that a corporation needs to make profit. The argument made is that the companies meaning to be good, or at the very least, seeming to do good, are now becoming mainstream. The article argues that by developing the new idea of a “corporate social responsibility”, companies gain a competitive edge in the market, and thereby increase revenue and fulfill their responsibility to their shareholders and customers. The article also reveals much evidence supporting the idea that the growing desire for a corporate social responsibility is driving companies to become more transparent, to report on more than just their financial performance, and to “do good”. However the article also shows the desire of these companies to not truly shift into the realm of sustainable practice, as the demands of respondents of companies are not being met. The article admits that the shift in business practice from the old model of profit responsibility, to the new sustainability responsibility model, is a difficult one, which comes with difficult inherent obstacles. Overall, the article does well to show how it is in a business’s best interest to be responsible, but puts the changes in perspective.
Personally, both arguments make very valid points, and the way that business and corporations are set up, having a business make drastic price increases to fund a socially responsible approach is a very risky gamble with low chances of success. Alternatively, a company that makes incremental and gradually more sustainable decisions, and markets and creates the demand for it effectively, stands to both lead the way in a new age, and dictate the new standards in business practice. Although being overzealous in their social responsibility could hurt a company, not being zealous enough could destroy their market, and leave their company doomed anyways. The most immediate solution is a much needed shift in how we see business, consumerism, and our economic system. Business that do not adhere to the growing idea of the populous that they are to be held responsible, must change. The problems we face however, are so large, that those “people” among us that have the most power, should have the responsibility to fix them. The corporate person has a great deal of power, and in many cases, that power and influence over the world has done much to cause the problems we face, so they should share an equally weighted portion of the responsibility. As the famous line goes, “with great power come great responsibility”, popularized by comic book, Spider-man, but quoted from New York City Mayor-Elect Thomas Francis Gilroy, in an 1982 interview with The New York Times (http://query.nytimes.com/mem/archive-free/pdf?res=F40F12FF3D5C17738DDDAC0994D9415B8285F0D3). Although Mr. Gilroy was talking about the power and responsibility of the government, in today’s world, I would say much more power lies in the hands of the corporations, and so should the responsibility.
An ongoing debate in the economic world is currently raging, as economists, consumers, and corporations discuss whether or not a corporation is responsible for more than just making a profit. The neoclassical model is that, yes, they do indeed only have that sole responsibility. To their shareholders, to their customer, and to their employees, they have the sole responsibility of keeping money in their pockets. The counter argument is that the world’s biosphere, the entirety of the world and all it supports, is in jeopardy, and it is the responsibility of those who can act, such as the multi-billion dollar corporations, to act, by enacting a sustainable business model. The main discrepancies shown between the two extreme sides of debates, at least as I have seen them, are that the argument for social responsibility does not seem to take into account the starting revenue costs to a corporation, the short term costs, will negatively affect the business. Also, the argument against social responsibility assumes that if a corporation was to show any shred of social responsibility, it would lose revenue, lose stock price, be bought out and revamped with a much less responsible model so that it would return to generating profits. These two extremes make large assumptions and ignore important issues that must be addressed if a practical, sustainable, solution is to be made.
The argument made by Milton Friedman, of the New York Times Magazine, in The Social Responsibility of Business is to Increase its Profits, back in 1970, is that of the ‘yes’ position. The general ideology of this argument is that if a corporation were to decide to be socially responsible, it would have to impose a raised price on a product, a loss of revenue for the stock holders, and a wage loss for the workers in order to pay for such a social movement. The author chooses the example of the corporate executive, embodying the corporation, as an embodiment for the corporation. He argues that a corporate executive, if he or she so wished, could choose to pursue moral, ethical, and social responsibilities, but would do so at their own economic expense, and not at the expense of the stakeholders in the company. He also argues that the business executive has a “social responsibility” to his stakeholders, through his business, but that this social responsibility is to keep the price down, the cost low, and profit margins high.
The main points in Friedman’s argument are that spending money on social responsibilities, such as environmental clean-up, is an unconstitutional taxation of the society in which the business acts. This argument does not do well in arguing against the idea of social responsibility, which argues that a corporation has a responsibility to a society beyond monetary. Friedman’s argument centers around any sort of social responsibility costing more than shareholders would allow, leading to the end of the business. However, evidence in the opposing article shows those businesses that practice sustainable practices, which are deemed “socially responsible”, in fact have increased revenue, and increased health of the company. Additionally, the key argument that a corporation must comply to the stake holders demands, however it must be said that what the stakeholders demands change with the change in society, and the change in the desire for social responsibility. When the stakeholders start to demand a more sustainable image, the corporation must adapt.
The argument made by Joe DesJardins, in the Business & Professional Ethics Journal, Vol. 24, in Business and Environmental Sustainability, is that of the ‘no’ position. The ideology behind DesJardins’ argument is that sustainability is a social responsibility. DesJardins is quick to define sustainability as a system with three main parts; economical, ethical, and ecological sustainability. Without all three, he argues, a business will not survive the coming new industrial revolution. A sustainable corporation is not a corporation that shows sustained growth, but one that grows sustainably, that is, one that develops better practices, and better products. DesJardins writes of how a business can seek additional revenue by going sustainable and cutting waste, and looking into full cycle companies. Additionally he writes about how the growing demand for sustainability as a social responsibility of corporations has already started to shift how the business does things. Additionally the argument presses that a large root of the problem is the way consumerism is working in today’s society and the power business has over the market demand.
DesJardins’ argument does well to cover every side of the issue, however when discussing the various changes that a corporation would need to make in order to be socially responsible, he fails at providing much evidence or case studies of how a business would fund such a massive shift in paradigm. Additionally, the argument made that a corporation has responsibilities for the full life cycle of a product was argued very weakly, and lacked sufficient evidence to say why corporations need to have this responsibility, only why they should have the responsibility.
A third article, given in the appendix below, by The Economist, from 1/17/2008, entitled Just Good Business, further elaborates on the case of the ‘no’, while striking some middle ground with the argument that a corporation needs to make profit. The argument made is that the companies meaning to be good, or at the very least, seeming to do good, are now becoming mainstream. The article argues that by developing the new idea of a “corporate social responsibility”, companies gain a competitive edge in the market, and thereby increase revenue and fulfill their responsibility to their shareholders and customers. The article also reveals much evidence supporting the idea that the growing desire for a corporate social responsibility is driving companies to become more transparent, to report on more than just their financial performance, and to “do good”. However the article also shows the desire of these companies to not truly shift into the realm of sustainable practice, as the demands of respondents of companies are not being met. The article admits that the shift in business practice from the old model of profit responsibility, to the new sustainability responsibility model, is a difficult one, which comes with difficult inherent obstacles. Overall, the article does well to show how it is in a business’s best interest to be responsible, but puts the changes in perspective.
Personally, both arguments make very valid points, and the way that business and corporations are set up, having a business make drastic price increases to fund a socially responsible approach is a very risky gamble with low chances of success. Alternatively, a company that makes incremental and gradually more sustainable decisions, and markets and creates the demand for it effectively, stands to both lead the way in a new age, and dictate the new standards in business practice. Although being overzealous in their social responsibility could hurt a company, not being zealous enough could destroy their market, and leave their company doomed anyways. The most immediate solution is a much needed shift in how we see business, consumerism, and our economic system. Business that do not adhere to the growing idea of the populous that they are to be held responsible, must change. The problems we face however, are so large, that those “people” among us that have the most power, should have the responsibility to fix them. The corporate person has a great deal of power, and in many cases, that power and influence over the world has done much to cause the problems we face, so they should share an equally weighted portion of the responsibility. As the famous line goes, “with great power come great responsibility”, popularized by comic book, Spider-man, but quoted from New York City Mayor-Elect Thomas Francis Gilroy, in an 1982 interview with The New York Times (http://query.nytimes.com/mem/archive-free/pdf?res=F40F12FF3D5C17738DDDAC0994D9415B8285F0D3). Although Mr. Gilroy was talking about the power and responsibility of the government, in today’s world, I would say much more power lies in the hands of the corporations, and so should the responsibility.
Third Resource: From The Economist, January 17th, 2008. Just Good Business http://www.economist.com/node/10491077